The present invention relates to inventory management methods and, more particularly, relates to an inventory management method that provides distinct service qualities for multiple demand groups.
Make-to-stock production is a method to respond to forecast error, that is, the gap between demand and forecast, by having safety stock. It is an important issue for inventory management to balance the contradictory requirements of minimizing stock and maximizing customer service. In other words, to ensure that enough goods are available to be shipped out from a warehouse to meet a customer deadline, the volume of stock held is likely to increase, resulting in a consequent increase in capital cost, and risks such as obsolescence leading to the disposal of goods. On the other hand, to simply decrease stock levels can lead to a decline in service quality. Therefore, in order to harmonize the balance between stock volume and service quality, various approaches have been applied, such as optimizing parameters for the replenishment of stock, or improving the accuracy of demand forecasts.
Although the phrase “service quality” is often used, there is no commonly agreed definition in use. The level of service to be achieved will vary according to the nature of the product and in response to a wide variety of factors and demands, for example, classification of customers, lead times, delivery dates, quantity and order size, to name but a few. If all these factors can be successfully dealt with, then there is the distinct possibility of both improving service quality and decreasing stock levels. However, methods that are generally used for inventory management, such as ordering point or periodic replenishment systems respond to all incoming demands equally, whatever demand has been made in terms of the above mentioned factors. When service quality needs to be differentiated in response to distinct classes of demands, two methods have been proposed. One of these methods is that stock may be completely separated according to distinct service qualities and the other method is that for all demands, the strictest service quality criteria is applied across the board.